E SPECIFICIDADES DE LOS SSEE APLICADOS AL ESTUDIO DE LAS RRII

This Chapter gives a broad outline of the VAT issues applicable to financial services in general.

What are financial services?

18.1 There is no definition in Irish VAT law of the term “financial services” but it may be taken to cover the activities of the banking, investment and insurance sectors. Within these broad headings there is a wide and complex range of “financial products”. A more detailed description of the VAT treatment of the various activities within the sector is given in the guide entitled VAT and Financial Services, a copy of which may be obtained from the local Tax Office, or from www.revenue.ie.

This Chapter therefore deals only with the broad issues which are applicable to financial services.

Law

18.2 Most, but not all, financial services are exempt from VAT. The legal bases for exemption of financial services are paragraphs (i) and (ix)(d) of the First Schedule to the Value-Added Tax Act, 1972, which are reproduced at Appendix A.

Examples of services which are exempt from VAT are banking transactions such as borrowing, lending, management of customer accounts; credit card transactions; dealings in stocks, shares and financial securities; management of special investment funds and agency services relating to these activities. Insurance and reinsurance transactions and certain insurance related services are also exempt from VAT per paragraph (xi) of the First Schedule.

Services which are liable to VAT include financial and investment advice, equipment leasing, safe keeping services and debt collection.

Exempt supplies of services

18.3 Exempt services are not liable to VAT. As a corollary to this, however, the suppliers of such services (in the present context, financial institutions such as banks and insurance companies etc.) are not entitled to recover VAT incurred on goods and services purchased by them in connection with the provision of those services.

Where however, exempt financial services are supplied or deemed to be supplied to customers established outside the EU, input VAT is recoverable to the extent that it relates to those specific services. These services are referred to as “qualifying activities” in the VAT Act, 1972 (as amended) (see paragraph 18.6) below

It should be noted that the place of supply of exempt financial services, supplied for non-business purposes by a person established in the State, to a customer whose usual place of residence is outside the E.U., for use and enjoyment here, is the State, e.g. a non-EU tourist

Taxable supplies of services

18.4 Financial institutions supplying taxable services are entitled to recover VAT incurred on their purchases of goods and services to the extent that it relates to their taxable activities.

Supplies of both exempt and taxable services

18.5 Where institutions supply both exempt and taxable services, input VAT will arise on purchases of goods and services attributed to both exempt and taxable supplies.

There is no difficulty in determining VAT recoverability where purchases are attributable solely either to exempt or taxable supplies, in that no credit is allowable in respect of the former whereas full credit is allowable in respect of the latter.

Input VAT may be attributable both to exempt and taxable sides of the business. Goods or services which are not attributable either to taxable outputs or to exempt outputs (referred to as ‘dual-use inputs’) must be apportioned by a method which correctly reflects the use to which the inputs are put and also reflects the range of the taxable persons activities (see the Guide to the Apportionment of Input Tax)

Place of supply

18.6 Financial services come within the provisions of the Fourth Schedule to the VAT Act and as such, when received for business purposes, are deemed to be supplied where the services are received (see paragraphs 4.8 and 4.9 of Chapter 4). In the case of financial services received in the State for business purposes, VAT if chargeable, must be accounted for by the recipient of the service in the State. Where financial services are supplied by a person in the State to business persons outside the State, or to private persons outside the EU, the place of supply is normally outside the scope of Irish VAT. However, where such services are supplied by a person established in the State to private persons from outside the EU and the services are for use and enjoyment in the State the place of supply is the State.

Supplies of exempt financial services to customers located outside the EU, business or private, are “qualifying activities” and thereby qualify for input credit (apart, that is, from exempt financial services supplied to non-business persons from outside the E.U. for use and enjoyment in the State). Financial institutions which import taxable financial or other Fourth Schedule services from suppliers outside the State are liable for VAT on such imported services. VAT Information Leaflet No. 9/01 outlines the treatment of Fourth Schedule services.

Insurance and insurance related services

18.7 The provision of insurance services is an exempted activity. Exemption also applies to related services performed by insurance brokers and insurance agents (see paragraph (xi) of Appendix A).

The term ‘related services performed by insurance brokers and insurance agents’ denotes active participation by an agent or broker in the process of arranging or settling the contract of insurance and where claims handling and claims settlement services are concerned the requirement is that the service provider must operate under binding delegated authority.

Group registration

18.8 VAT law provides that where two or more persons established in the State are closely bound by financial, economic and organisational links, they may, in certain circumstances, subject to the satisfaction of Revenue, be treated as a single taxable person for VAT purposes (see paragraph 2.13 of Chapter 2).

This group registration arrangement is particularly relevant in the case of financial service companies, and conditions relating to group treatment are dealt with in the Guide to Financial Services.

Chapter 19